GLOBAL MARKETS-Investors cheer Portuguese bank rescue

Reuters Staff

5 Min Read

By Jamie McGeever
LONDON, Aug 4 (Reuters) - Investors breathed a sigh of
relief on Monday after Portugal prevented the collapse of one of
its biggest banks, putting some life back into European stocks
following last week's slide and pushing bond yields lower across
the board.
Lisbon on Sunday announced a near 5 billion-euro rescue of
the country's largest listed bank Banco Espirito Santo,
preventing its collapse and potential contagion across the
continent's banking sector.
This dovetailed with easing fears of higher U.S. interest
rates following Friday's U.S. employment report, and eclipsed
growing geopolitical concerns surrounding the Middle East and
effect of Western trade sanctions on Russia.
"The market's initial reaction is that it's pretty
reassuring to see Portugal moving quickly to rescue BES. Overall
it eases systemic fears that had resurfaced last week," Saxo
Bank sales trader Andrea Tueni said.
"But it's not enough to spark a real rebound in the overall
market. This is mostly a technical bounce from last week's slide
and the trend remains negative for now," he said.
In early trade on Monday the FTSEurofirst 300 index
of leading shares was up 0.2 percent at 1,335 points, led by a
0.8 percent rise in pan-European banking stocks.
Euro zone financials were up 1.3 percent and
Portuguese banks were up 6 percent. Shares in
BES were still suspended.
Germany's DAX rose 0.2 percent to 9,226 points,
France's CAC 40 was up 0.5 percent at 4,223 points and
Britain's FTSE 100 index was up 0.2 percent at 6,692.
European shares led the losses last week as concern mounted
over tension between Russia and the West, as well as the BES
crisis which saw its share price plunge 50 percent on Friday
alone.
It was a more mixed picture in Asia. MSCI's broadest index
of Asia-Pacific shares outside Japan rose 0.4
percent, largely as Chinese shares continued to rally on signs
that the economy was regaining momentum, but Japan's Nikkei
average hit a one-week low.
The three main indices on Wall Street pointed to a higher
open on Monday of around a third of one percent
. The S&P 500 fell 2.7 percent last week, its
biggest weekly decline in more than two years.
FED FEARS EASE
Europe's bond markets showed a similar sense of relief, with
yields on Portuguese, Spanish and Italian bonds all down by five
or six basis points IT1-YT=RR.
The rate-sensitive two-year notes yield was little changed
at 0.47 percent and the 10-year yield fell two basis
points to 2.49 percent.
Bond yields were also capped by Friday's U.S. jobs data for
July, which showed job growth lower than forecast, the
unemployment rate higher than expected, and perhaps most
importantly almost no growth at all in average hourly earnings.
A Reuters poll on Friday after the jobs data showed that a
majority of top Wall Street bond firms saw no rise in U.S.
interest rates before the second half of next year.
There's been no shortage of reasons to keep investors on
their guard either, from Argentina's debt default last week to
the spreading violence and tension across the Middle East, to
the economic consequences of the West's sanctions on Russia.
About 40 European blue-chips, including many German
companies, derive more than 5 percent of their revenues from the
Russian market.
"We have lowered our euro area GDP growth projections in
response to deteriorating trade relations with Russia," Barclays
economists said in a note on Monday, now predicting 0.9 percent
growth this year, down from 1.0 percent, and 1.4 percent next
year, down from 1.6 percent.
All major currencies were flat on Monday compared with late
New York levels on Friday. The euro was at $1.3427, off
last week's 8-month low of $1.3366, while the dollar stood at
102.55 yen, off Wednesday's four-month peak of 103.15
yen.
U.S. crude oil futures edged up to $98.09 per barrel,
recovering from a six-month low of $97.09 on Friday, and gold
was little changed at $1.295 an ounce.
(Reporting by Jamie McGeever, additional reporting by Blaise
Robinson in Paris; Editing by Toby Chopra; To read Reuters
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